- Renewed regional bank woes sours risk sentiment.
- US debt default risk sparks safe-haven demand.
- US dollar ends week with gains except against safe-haven currencies.
USDCAD snapshot: open 1.3514-18, overnight range 1.3502-1.3566, close 1.3558, WTI $70.33, Gold $2016.32
The Canadian dollar sold-off on Friday due to broad-US dollar demand stemming from Michigan Consumer Sentiment data and concern about a US debt default.
Canadian dollar direction will be determined by evens in the US while domestic data (Canada April Housing Starts and Wholesale Sales) are ignored.
The Michigan Consumer Sentiment saw long-term inflation expectations jump to a new cycle high and sparked fears that the Fed would be forced to raise rates again in June. Those fears were exacerbated after Fed Vice Chair Philip complained that inflation was still too high and that the current disinflation has been uneven and slower than the Fed expected. He added that the lack of weakness in Core Inflation was “bad news” which further supported arguments for more rate hikes.
Traders were also skittish because of some-what hysterical media reports about the state of the US debt ceiling negotiations. However, those concerns eased somewhat over the weekend following news that House Majority leader Kevin McCarthy would meet with President Joe Biden on Tuesday.
The Turkish election was another distraction. Incumbent President Recep Erdogan failed to secure enough votes and faces a run-off vote on May 28.
Asian equity indexes closed on an upbeat note. Japan’s Nikkei 225 index finished with a 0.81% gain while Australia’s ASX 200 rose 0.14%.
European bourses opened in positive territory and then drifted into the start of the US session. The UK FTSE 100 index leads the way with a 0.25% increase. S&P 500 futures are modestly higher while the US 10-year Treasury yield is at its session peak of 3.489%.
EURUSD is dancing to the US debt ceiling tune. Prices climbed from 1.0847 to 1.0879 on news that President Biden and House Speaker Kevin McCarthy are planning to continue budget talks on Tuesday. Eurozone Industrial Production fell 4.1% m/m in March (forecast -2.5% m/m)
GBPUSD is attempting to recoup Friday’s losses and climbed from 1.2447 to 1.2497 just in early NY trading. The mild optimism around the US debt ceiling talks supported prices. However, ING analysts suggest that GBPUSD will tumble wage growth and inflation data weakens, prompting the BoE to leave rates unchanged at its June 22 meeting.
USDJPY rallied sharply Friday, then extended the gains overnight, rising from 135.64 to 136.32. The gains are supported because BoJ Governor Kazuo Ueda just won’t stop belaboring the necessity for dovish monetary policy at the same time as US treasury yields rise. The April PPI index rose 5.6% y/y (forecast 6.0, pervious 7.4%.)
AUDUSD climbed in a 0.6642-0.6692 range garnering a bit of support after economists at National Australia Bank (NAB) changed their interest rate forecast. They now believe the RBA will hike rates by 25 bps in July and another increase before year end, due to sticky inflation.
There are no US economic reports of note today.
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